CASH COLLATERAL ACCOUNT AGREEMENT

This CASH COLLATERAL ACCOUNT AGREEMENT (this "Agreement") is dated as of January
11,  2001,  and  made  by  and  among  UGLY  DUCKLING  CORPORATION,  a  Delaware
corporation  ("UDC") and UGLY  DUCKLING  CAR SALES AND FINANCE  CORPORATION,  an
Arizona  corporation  ("UDCSFC"  and,  together with UDC, each a "Grantor"  and,
collectively,  the  "Grantors"),  and BNY MIDWEST TRUST  COMPANY,  as Collateral
Agent for itself and the Lenders party to the Loan  Agreement  referred to below
(in such capacity, "Agent" and referred to herein as "Secured Party").

                                    RECITALS

     WHEREAS, UDC, certain Lenders and Secured Party are parties to that certain
Senior  Secured  Loan  Agreement  dated as of  January  11,  2001  (as  amended,
supplemented  or otherwise  modified  from time to time,  the "Loan  Agreement";
capitalized  terms  used  herein  without  definition  shall  have the  meanings
ascribed to such terms in the Loan Agreement); and

     WHEREAS,  in connection  with the Loan  Agreement,  UDCSFC has executed the
Stock Pledge Agreement; and

     WHEREAS,  Secured Party has established a cash collateral  account in which
all Collections in respect of all Residual Certificates are to be deposited; and

     WHEREAS,  it is a  condition  precedent  to the  effectiveness  of the Loan
Agreement  that the Grantors  shall have executed and delivered to Secured Party
and Lenders this Agreement.

     NOW,  THEREFORE,  in  consideration  of the foregoing  and the  agreements,
provisions and covenants contained herein, the Grantors and Secured Party hereby
agree as follows:

                                   AGREEMENT

     SECTION 1.  Definitions.  The following  terms used in this Agreement shall
have the following meanings:

     "Cash Equivalents" means any of the following, so long as Secured Party has
a perfected  security interest  therein:  (i) securities  issued,  guarantied or
insured by the United States or any of its agencies and having maturities of not
more than thirty  days;  (ii)  certificates  of deposit or bankers'  acceptances
having  maturities of not more than thirty days issued by (a) Secured Party, (b)
any  Lender  or (c) a  U.S.  federal  or  state  chartered  commercial  bank  of
recognized  standing  whose  capital  and  unimpaired  surplus  is in  excess of
$200,000,000 and whose short-term commercial paper rating, or that of its parent
holding  company,  is at  least  A-1 or the  equivalent  by  Standard  &  Poor's
Corporation  ("S&P")  and at least P-1 or the  equivalent  by Moody's  Investors
Services,  Inc.  ("Moody's");  (iii) marketable direct obligations issued by any
state of the United States of America or any political  subdivision  of any such
state or any public instrumentality thereof maturing within thirty days from the
date of acquisition thereof and, at the time of acquisition,  having the highest
rating from either S&P or Moody's;  (iv) certificates of deposit maturing within
thirty days of the date of  acquisition  thereof in an amount less than or equal
to $100,000 in the aggregate  issued by any bank insured by the Federal  Deposit
Insurance  Corporation;  (v) eurodollar  time deposits  having a maturity of not
more than thirty days purchased  directly from any Lender  (whether such deposit
is  with  such  Lender  (or  its   Affiliates)  or  any  other  Lender  (or  its
Affiliates));  (vi) commercial paper rated at least A-1 by S&P or P-1 by Moody's
and,  in either  case,  having a tenor of not more than thirty  days;  and (vii)
money market funds invested in one or more of the foregoing.

"Collateral"  means (a) the  Collateral  Account  and all funds and  monies  and
investment  property  from  time  to  time  on  deposit  in or  credited  to the
Collateral  Account,  (b) all Permitted  Investments,  including all  investment
property,   certificates,   instruments   and  securities   from  time  to  time
representing  or  evidencing  such  Permitted  Investments  and any  account  or
accounts in which such Permitted  Investments may be held by, or in the name of,
Secured Party for or on behalf of Grantors, (c) all interest,  dividends,  cash,
instruments,  investment property and other property from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Collateral,  and (d) to the extent not covered by clauses (a) through (c)
above, all proceeds of any or all of the foregoing.

     "Collateral  Account" means the cash  collateral  account  established  and
maintained pursuant to Section 2 hereof.

     "Permitted  Investments"  means those  investments made by Secured Party in
Cash Equivalents for the account of Grantors pursuant to Section 5.

     SECTION 2. Collateral Account

     (i) Secured Party shall establish and maintain at BNY Midwest Trust Company
at Chicago,  Illinois,  in the name of, and under the sole  dominion and control
of, Secured  Party, a special cash  collateral  account  (account  number 197869
designated as "Ugly Duckling Corporation Collateral Account.")

     (ii) Upon  Secured  Party's  receipt  of any  Collections  pursuant  to any
Standing  Dividend  Resolution,  Section 2.2 of the Loan Agreement or otherwise,
Secured  Party shall  promptly  deposit  such  Collections  into the  Collateral
Account.

     (iii) Anything contained in this Agreement to the contrary notwithstanding,
any  interest  received in respect of any  Permitted  Investment  of any amounts
deposited  in the  Collateral  Account  shall be deemed  Collateral,  subject to
release to Grantors only pursuant to Section 3 hereof.

     (iv) In addition to the deposits of Collections  in the Collateral  Account
pursuant  to  Section  2(ii),  on or about the date  hereof  the  Grantors  have
deposited to the Cash Collateral Account additional cash collateral in an amount
equal to the Required Cash  Collateral  Amount.  Such additional cash collateral
shall be held separate from  Collections and shall be released from time to time
as provided in Section 3(ii) hereof.  Such  additional  cash  collateral  may be
invested in Cash Equivalents in accordance with the provisions of this Agreement
and shall otherwise  constitute  security for the  Obligations  pursuant to this
Agreement.  [Interest earned on such amount will be distributed to Grantors from
time to time as requested by Grantors.]

     SECTION 3. Release of Collateral; Payment of Loans.

     (i) Secured  Party  shall,  on each  Payment  Date,  repay the  Outstanding
Principal Amount in an amount equal to the Monthly  Amortization Amount for such
Payment  Date,  together  with all  accrued  and unpaid  interest  and all other
amounts then due and payable under the Loan  Documents from funds (and only from
funds) on deposit in the Collateral Account.

     (ii) Any provision of the Loan  Agreement to the contrary  notwithstanding,
any amounts held by Secured  Party in the  Collateral  Account and not otherwise
required to be applied to the  Obligations  shall,  at the written  direction of
UDC, be applied to repay  Obligations under the Loan Agreement (to be applied as
set forth in Section 2.6 thereof) or, if the Borrowing  Base plus such amount on
deposit  in the  Collateral  Account  exceeds  the  sum of (1)  the  Outstanding
Principal  Amount plus (2) the Required Cash Collateral  Amount at such time and
no Default has occurred and is  continuing,  such amounts held in the Collateral
Account shall, upon written request by Borrower to Collateral Agent, be released
to Borrower up to the amount of such  excess;  provided,  however,  that (a) any
release to Borrower of amounts on deposit in the  Collateral  Account shall only
be made on a Payment  Date and only after  giving  effect to the  payment of all
amounts due under the Loan  Documents  on such  Payment  Date and (b) no release
shall result in the amount on deposit in the Collateral  Account being less than
the Required Cash Collateral Amount at such time.

     SECTION 4. Pledge; Security for Obligations. Each Grantor hereby assigns to
Secured Party,  for the benefit of Secured Party and the ratable  benefit of the
Lenders, and hereby grants to Secured Party for the benefit of Secured Party and
the ratable  benefit of the Lenders a  continuing  security  interest in, all of
such Grantor's right, title and interest in the Collateral to secure the payment
and  performance  of all  the  Secured  Obligations  (as  defined  below).  This
Agreement  secures,  and the  Collateral is collateral  security for, the prompt
payment  and  performance  in full when due,  whether  at  stated  maturity,  by
declaration,  acceleration  or otherwise  (including the payment of amounts that
would  become due but for the  operation  of the  automatic  stay under  Section
362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a), or any successor  provision
thereto,  whether or not an allowed claim), of all obligations or liabilities of
every nature now or hereafter existing under this Agreement, the Loan Agreement,
the Notes or any other Loan Document and all amendments,  extensions or renewals
thereof,  whether  for  principal,  interest  (including,   without  limitation,
interest  that,  but for the filing of a petition in bankruptcy  with respect to
any Grantor, would accrue on such obligations, whether or not an allowed claim),
indemnities,  fees,  expenses or  otherwise,  whether now  existing or hereafter
arising,  voluntary  or  involuntary,  whether or not jointly  owed with others,
direct or indirect,  absolute or  contingent,  liquidated or  unliquidated,  and
whether or not from time to time deceased or extinguished  and later  increased,
created or incurred,  and all obligations or liabilities of every nature of such
Grantor now or hereafter existing under this Agreement,  the Loan Agreement, the
Notes or any other  Loan  Document  (all  such  obligations  being the  "Secured
Obligations").

     SECTION  5.  Investment  of  Amounts in  Collateral  Account.  Cash held by
Secured  Party in the  Collateral  Account  shall not be invested or  reinvested
except as provided in this Section 5. Secured  Party may invest funds on deposit
in the Collateral  Account in Cash Equivalents and, provided no Event of Default
has occurred and is continuing,  shall invest in such Cash Equivalents as may be
specified from time to time in a written request from UDC.

     SECTION 6. Application of Collateral.  Notwithstanding  any other provision
of this Agreement,  the Loan Agreement or any other Loan Document,  each Grantor
agrees that if any Secured  Obligation  becomes due and remains unpaid,  Secured
Party  may,  at any time and from time to time,  without  notice to or demand of
Grantors,  set off and apply any and all of the Collateral then or thereafter on
deposit  in the  Collateral  Account  against,  and/or  continue  to  hold  such
balances,  monies and  proceeds  as  security  for,  the  payment of any and all
Secured Obligations as the same may become due, all as the Lenders may elect and
whether or not any default shall have occurred  hereunder.  Each Grantor  hereby
agrees  that  the  pledge  and  security  interest  provided  above  shall  be a
continuing  security  for the  payment  of the  Secured  Obligations  until  the
termination of this Agreement.

     SECTION 7.  Representations  and  Warranties.  Each Grantor  represents and
warrants to Secured Party that the following  statements  are true,  correct and
complete:

     (i) Each Grantor is a corporation duly organized,  validly, existing and in
good standing under the laws of its state of incorporation and is duly qualified
and in good  standing in each  jurisdiction  where the nature of its business or
properties requires such qualification.

     (ii) The  execution,  delivery  and  performance  by each  Grantor  of this
Agreement are within the power of such Grantor and have been duly  authorized by
all necessary actions on the part of such Grantor or its shareholders.

     (iii) This  Agreement  has been duly executed and delivered by each Grantor
and  constitutes  a  legally  valid  and  binding  obligation  of such  Grantor,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy,  insolvency  or other laws of  general  application  relating  to or
affecting the enforcement of creditors' rights generally.

     (iv) The execution,  delivery and  performance of this Agreement do not (a)
violate  any  provisions  of law or any  order of any  court or other  agency of
government,   (b)  contravene  any  provision  of  any  Grantor's   Articles  or
Certificate of  Incorporation,  Bylaws or any material  contract or agreement to
which any Grantor is a party or by which any Grantor or any Grantor's assets are
bound,  or (c)  result in the  creation  or  imposition  of any lien,  charge or
encumbrance  of any nature  upon any  property,  asset or revenue of any Grantor
except pursuant to this Agreement.

     (v) Each Grantor is the legal and beneficial  owner of the Collateral  free
and clear of any Lien except for the lien and security  interest created by this
Agreement and/or the Loan Documents.

     (vi) The pledge and assignment of the Collateral pursuant to this Agreement
creates  a  valid  and  perfected  first  priority   security  interest  in  the
Collateral, securing the payment of the Obligations.

     (vii) The  chief  place of  business  and  chief  executive  office of each
Grantor  and the office  where each  Grantor  keeps its records  concerning  the
Collateral is located at 2525 East Camelback Road, Suite 500,  Phoenix,  Arizona
85016.

     SECTION 8.  Further  Assurances.  Grantors  agree that at any time and from
time to time, at the expense of Grantors, they will promptly execute and deliver
to Secured Party any further  instruments  and  documents,  and take any further
actions,  that may be necessary or that  Secured  Party or Required  Lenders may
reasonably  request,  in order to perfect  and  protect  any  security  interest
granted or purported to be granted hereby or to enable Secured Party to exercise
and  enforce  its  rights  and  remedies  hereunder  and  with  respect  to  any
Collateral,  including without limitation,  (i) the execution and filing of such
financing or  continuation  statements,  or amendments  thereto,  and such other
instruments  or notices,  as may be  necessary,  or as Secured Party or Required
Lenders may  reasonably  request,  in order to perfect and preserve the security
interests  granted or purported to be granted hereby and (ii) at Secured Party's
or Required  Lenders'  request,  appear and defend any action or proceeding that
may affect Grantors' title to or Secured Party's security interest in all or any
part of the Collateral.

     SECTION 9. Acknowledgment of Risks. Each Grantor specifically  understands,
acknowledges and agrees that this Agreement and the agreements,  obligations and
liabilities  of such  Grantor  hereunder  shall not be  discharged  or otherwise
affected by any bankruptcy, reorganization or similar proceeding commenced by or
against Grantors or any subsidiary of the Grantors. Each Grantor understands and
acknowledges that by virtue of this Agreement,  it has specifically  assumed any
and all risks of any such  proceeding  with respect to any other  Grantor or any
subsidiary of any Grantor.

     SECTION 10. Transfers and Other Liens. Each Grantor agrees that it will not
sell or otherwise  dispose of any of the Collateral or create or permit to exist
any Lien upon or with respect to any of the Collateral,  except for the lien and
security interest created by this Agreement or any other Loan Document.

     SECTION 11. Additional Agreements. Grantors agree not to take or consent or
agree to any action  which would impair or otherwise  adversely  impact  Secured
Party's interest or ability to exercise  remedies with respect to the Collateral
(as defined in the Loan Agreement), except as otherwise permitted under the Loan
Agreement or any other Loan Document.

     SECTION 12. Secured Party Appointed  Attorney-in-Fact.  Each Grantor hereby
appoints Secured Party as each Grantor's  attorney-in-fact,  with full authority
in the  place  and  stead of such  Grantor  and in the name of such  Grantor  or
otherwise,  from  time to  time,  at any  time  in  Secured  Party's  reasonable
discretion to take any action and to execute any instrument  which Secured Party
may  reasonably  deem  necessary or advisable to accomplish the purposes of this
Agreement.

     SECTION 13. Secured Party May Perform.  If any Grantor fails to perform any
agreement  contained  herein,  after notice to each  Grantor,  Secured Party may
itself  perform,  or cause  performance  of, such  agreement and the expenses of
Secured  Party,  incurred in connection  therewith  shall be payable by Grantors
under Section 16 hereof.

     SECTION  14.  Standard  of Care.  The powers  conferred  on  Secured  Party
hereunder  are solely to protect its interests in the  Collateral  and shall not
impose  any  duty  upon it to  exercise  any such  powers.  Except  as  provided
hereunder and except for the exercise of  reasonable  care in the custody of any
Collateral in its possession and the accounting for monies actually  received by
it hereunder,  Secured Party shall have no duty as to any  Collateral,  it being
understood that Secured Party shall have no responsibility  for (a) ascertaining
or taking  action with  respect to calls,  conversions,  exchanges,  maturities,
tenders or other  matters  relating  to any  Collateral,  whether or not Secured
Party  has or is  deemed to have  knowledge  of such  matters,  (b)  taking  any
necessary  steps (other than steps taken in accordance with the standard of care
set forth above to maintain  possession of the  Collateral)  to preserve  rights
against any parties with respect to any Collateral, (c) initiating any action to
protect the Collateral  against the possibility of a decline in market value, or
(d) any loss resulting from  Permitted  Investments  made pursuant to Section 5.
The Secured  Party shall not be required to exercise any  discretion or take any
action under this Agreement, but shall be required to act or refrain from acting
(and shall be fully  protected in so acting or refraining  from acting) upon the
instructions of the Required  Lenders,  and such  instructions  shall be binding
upon all Lenders,  and the Secured  Party shall not be liable to the Grantors or
any Lender with respect to any action  taken or omitted at the  direction of the
Required Lenders, provided that the Secured Party shall not be required to taken
any action  that  exposes  the  Secured  Party in its sole  judgment to personal
liability or that is contrary to this Agreement or applicable law.

     SECTION 15.  Remedies upon Default.  If any default shall have occurred and
be continuing hereunder Secured Party may exercise in respect of the Collateral,
in  addition to any and all other  rights and  remedies  provided  for herein or
otherwise  available  to it, all the rights and  remedies of a Secured  Party on
default under the Uniform Commercial Code (the "Code") as in effect in the State
of Illinois at that time.

     SECTION 16.  Expenses.  Grantors agree to promptly pay to Secured Party all
the actual costs and expenses  which Secured Party may incur in connection  with
(a) the custody or preservation  of, or the sale of,  collection  from, or other
realization upon, any of the Collateral,  (b) the exercise or enforcement of any
of the rights of Secured Party  hereunder,  or (c) the failure by any Grantor to
perform or observe any of the provisions hereof.

     SECTION 17. No Waiver. No failure on the part of Secured Party to exercise,
and no course of dealing with respect to, and no delay in exercising, any right,
power or remedy  hereunder  shall  operate  as a waiver  thereof;  nor shall any
single or  partial  exercise  by  Secured  Party of any  right,  power or remedy
hereunder  preclude any other or further exercise thereof or the exercise of any
other right,  power or remedy.  The remedies  herein provided are to the fullest
extent  permitted  by law  cumulative  and are  not  exclusive  of any  remedies
provided by law.

     SECTION 18.  Amendments,  Etc. No amendment,  modification,  termination or
waiver of any  provision of this  Agreement,  or consent to any departure by any
Grantor  therefrom,  shall  in  any  event  be  effective  without  the  written
concurrence of Secured Party.

     SECTION 19. Notices.  Except as otherwise specifically provided herein, any
notice or other communication  herein required or permitted to be given shall be
in writing and may be personally served, telecopied, telexed or sent by mail and
shall be deemed to have been given when  delivered  in person,  upon  receipt of
telecopy  or  telex  or four  (4)  Business  Days  after  deposit  in the  mail,
registered or certified,  with postage prepaid and properly  addressed.  For the
purposes  hereof,  the address of each of the parties  hereto (until notice of a
change thereof is delivered in the manner provided herein) shall be as specified
in the Loan Agreement.

     SECTION 20. Continuing Security Interest; Termination. This Agreement shall
create a continuing  security interest in the Collateral and shall (a) remain in
full force and effect until indefeasible payment in full of all Obligations; (b)
be binding upon each Grantor,  its  permitted  successors  and assigns;  and (c)
inure to the benefit of Secured Party and its respective successors, transferees
and assigns.  Upon  indefeasible  payment in full of the  Obligations,  Grantors
shall be entitled to the return, upon its request and at its expense, of such of
the Collateral as shall not have been sold or otherwise  applied pursuant to the
terms hereof.

     SECTION 21. GOVERNING LAW; TERMS.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE  CONSTRUED  AND  ENFORCED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF
ILLINOIS,  EXCEPT AS REQUIRED BY MANDATORY  PROVISIONS  OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY OR  PERFECTION  OF THE SECURITY  INTEREST  HEREUNDER OR
REMEDIES HEREUNDER,  IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS.

     Unless otherwise defined herein or in the Loan Agreement,  terms defined in
Article  9 of the  Uniform  Commercial  Code in the State of  Illinois  are used
herein as therein defined.

<PAGE>
     IN WITNESS  WHEREOF,  Grantors and Secured Party have caused this Agreement
to be duly executed and delivered by their  respective  officers  thereunto duly
authorized as of the date first above written.

GRANTORS:

UGLY DUCKLING CORPORATION,
a Delaware corporation

By: ___________________________________________________________________________
Title: ________________________________________________________________________


UGLY DUCKLING CAR SALES AND FINANCE CORPORATION,
an Arizona corporation

By: ___________________________________________________________________________
Title: ________________________________________________________________________


SECURED PARTY:

BNY MIDWEST TRUST COMPANY,
as Collateral Agent

By: ___________________________________________________________________________
Title: ________________________________________________________________________